Tricks of the Trade. Sales tricks, investment abuses.

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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Fri May 20, 2011 4:47 pm

Screen shot 2011-05-20 at 5.45.34 PM.png

"OK guys, here is the "plan". We lie to our clients about our license, sell them the most expensive choice of house brand funds, and leverage them for more commission............nobody will ever figure this one out........"


http://www.thestar.com/article/943353-- ... s-up-front

The above link is to a great, ground breaking article by Ellen Roseman of the STAR. The STAR is one of the remaining media outlets in Canada that still has enough autonomy to tell it like it is, without apparent fear of how it might affect their advertising friends.......I recommend this paper because of this.

Anyway, the original article is above, and some of my own comments in red, below are inserted where appropriate in the same article. I do this so that the victim in this case, can access this information, and hopefully use it to get a fair level of compensation from Investors Group. They have done a number of disservices in this case, and I suspect that most if not all Investors Group customers might fall into the same category with some of these sales frauds.

They owe this person at least that she be "made whole", ie, put back in exactly the position she was in prior to meeting up with Investors Group, plus some compensation for the time, energy, shit and abuse that they levelled upon her. Instead of dealing fairly and honestly, the lies, misrepresentations and negligence put upon trusting and vulnerable customers are example of hoodlum behavior, and that was not what Investors Group advertises, nor promises in it's advertising and literature.


article begins below:

Marissa Colalillo has a complaint about the misleading way that mutual funds are often sold to customers.

In February 2008, she went to a salesperson registered with Investors Group (misrepresentation here due to IG rep failing to disclose salesperson license, instead inflating title to one of professional “advisor”, consultant or strategest.......it is very likely that at NO TIME did the salesman disclose his license category as “salesperson” at the MFDA and or at the Ontario Securities Commission) and invested more than $500,000 of her family’s money in mutual funds with deferred sales charges (DSCs). This is a potential criminal level of misrepresentation.

Dissatisfied with the service, she started looking for a new investment dealer a year later. That’s when she learned how the DSCs curbed her freedom to cash in her funds and move elsewhere.

Mutual fund managers must disclose their sales charges in a document given to purchasers at the time of sale, known as a prospectus.
“I’d have to pay $28,000 to leave Investors Group,” Colalillo says.
“A prospectus is legalese. Verbal disclosure is crucial when you look at the amount of the penalty.”

In her complaint to the Ombudsman for Banking Services and Investments, which is still under review, she said the deferred sales charges had not been explained to her by the salesperson. (“ the cornerstone of the public markets is full, true, plain and timely disclosure.........” disclosure of all pertinent facts is the requirement. Handing a client a prospectus is like handing them the phone book and telling them the “secret” is hidden inside. This is often precisely why an “advisor” or “consultant” is sought out, so that customers can have faith and trust that there are no secrets being kept from them and so they do not have to read the prospectus. Does a doctor trick you every time you fail to study the medical textbooks? In this case the “specialist” she discovered at Investors Group kept both his actual commission salesperson license from her, and also his motivation to sell her the highest paying commission product.....not to mention to leverage it (borrow) so she could buy more, and he could earn more. Unfortunately this seems to be standard operating procedure from too many investment sellers.

Nor was she told that Investors Group offered a choice of funds with DSCs (the Series A funds) and without DSCs (the Series B funds). (failure to meet “suitability”., and “best execution” rules required by industry, failure to live up to “advisor” promise”) Suitability rule DOES NOT mean most suitable for the salesman.......

Best execution rule means an duty to place the client into the most cost effective choice......again, not the most commission effective, which is what Investors Group does most often.

Kevin Regan, executive vice-president of the Winnipeg-based fund dealer, said he preferred not to comment about a case going through mediation.
Colalillo still has her family’s money with Investors Group. But if she were selling the funds today, she would have to be told verbally about the charges that would be deducted from her proceeds.
Canadian securities regulators have approved new rules that will require fund dealers to tell clients of any transaction fees before accepting an order.
I call it “just-in-time” consumer education. You need to know about DSCs not only when you buy mutual funds, but also when you plan to sell.
With more timely disclosure, you can avoid a badly timed sale that incurs a stiff fee. DSCs usually drop to zero after the first seven years of ownership.
The push for new rules came from the Ontario Securities Commission and two self-regulatory groups: the Mutual Fund Dealers Association (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC).

“We felt it was the right thing to do,” says Larry Waite, chief executive of the MFDA.
Clients had complained about surprise charges shown on trade confirmations and account statements, when it was too late to do anything.
Any switch fees involved in fund transactions, as well as taxes withheld from the proceeds paid to a client, must also be disclosed.
The change should not be onerous for dealers, nor should it slow down the execution of buy and sell orders, Waite says.
Members can provide an estimate – expressed as a percentage or in dollars – of the fees and charges that would apply on an individual transaction.
But they would not be in compliance if they used standard blanket disclosure for all transactions, saying that “additional fees and charges may apply.”
The MFDA, which was recognized as a self-regulatory organization in 2001, has imposed $18 million in penalties against member firms.
It’s currently reviewing the failure of some member firms to perform adequate supervision of leverage recommendations.
As of July 2010, clients must get a disclosure document outlining the risks. In addition, it says: “Your adviser should discuss with you the risks of borrowing to invest.”

I like this approach. In my view, enhanced written disclosure isn’t enough.
Investors such as Colalillo can’t always read and understand the paperwork they’re given. They need a salesperson to give them the goods at a time when they’re buying or selling – or considering such a transaction.
Hurray for Canada’s securities regulators for approving the new rules on mutual fund charges. My only question: What took them so long?
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Fri May 20, 2011 11:31 am

Kenmar Associates Investor Education and Protection
ALERT ALERT ALERT ALERT May 20 , 2011
Fund Facts (FF) is coming, Fund Facts is coming
To: Retail Investors, Widows and widowers, Seniors Retirees and pensioners
Screen shot 2010-08-22 at 12.08.47 PM.png

The infirm, the trusting, the vulnerable

A new document is coming for mutual fund investors. It's called Fund Facts (FF) and soon you'll receive it before you're sold a mutual fund. It is a dumbed down version of the detailed Simplified Prospectus. You will no longer receive the Prospectus unless you ask for it. While the Fund Facts is only 2 or 3 pages in length it attempts to provide some key facts of the mutual fund . The chances of it actually being read is expected to be higher, if indeed it's actually delivered in advance of purchase. You may have it “delivered” via a link to a website. That's hardly effective disclosure but that's how regulators have set up the system. In any event, make sure you understand the Objectives of the fund ( not well articulated in Fund Facts; seeing what the fund invests in is not the same as understanding its objectives).While FF can provide a broad overview it has a number of important deficiencies. In our view , FF alone cannot lead to an informed investment decision even if salespersons and regulators put forward that proposition. Originally, regulators had planned to include a Guide on how to use FF, but industry objections prevailed.

Retail investors should consider the following :
1 Understand that the MER added to the TER is the real cost of owning the fund. FF's provides both measures but doesn't make it clear they should be added together.

2. You will need to visit globefund.com to see how the fund has performed vs. a benchmark . Oddly, FF does not include a benchmark metric.

3. The risk is defined in simplistic terms- basically one word like MEDIUM. Each Fund Company is allowed to establish its own methodology for determining risk and the correct word bucket to assign it on the 5 point scale. We recommend you look at the worst 52 weeks performance available at morningstar.ca .A detailed enumeration of all the fund’s risks, including qualitative risks, can be found only in the Simplified Prospectus - you'll have to muster up the energy and read the Prospectus if you're a responsible investor. Or, you can trust your salesperson.

4. There is not enough information provided in FF to determine suitability. Ask your salesperson why he/she is recommending the particular fund.

5.FF does not provide portfolio turnover, an indicator of the manager’s trading strategy and of tax exposure. However, the Management Report of Fund Performance , a copy of which is available upon request, will tell you the fund`s portfolio turnover ratio,. Other than increasing broker costs and income taxes, there’s no evidence that a high turnover ratio is related to superior mutual fund performance.

6 Fund Facts does not detail the percentage of each holding but you can easily find this out by visiting http://www.fundlibrary.com , http://www.globeinvestor.com , or http://www.morningstar.ca

7. Mutual funds can hold stocks and other securities that don’t always match the name given to the fund. This can be misleading and play havoc with asset allocation . FF does not delineate the fund Category. Ask your salesperson what Category of fund you are being sold. See http://www.cifsc.org for the definition of fund categories in Canada. Look at top 25 holdings.

8. Performance comes and goes, but fees are forever. Investors must pay sales charges, annual fees, and other expenses regardless of how the fund performs. A good description on how fund fees work and how they impair returns can be found at

http://www.mackenziefinancial.com/epris ... MF3873.pdf Costs count-

Try out the mutual fund fee impact calculator at http://www.getsmarteraboutmoney.ca/tools- and-calculators/mutual-funds/default.aspx to see how fees erode returns over time.

9. One of the major components of management fees is the sales commissions embedded in the management fee. Salespersons don’t work for free; they need to be paid. The ongoing trailing commissions (Fund Facts does not include the word “ongoing”) are paid to the dealer and salespersons for as long as you own the fund whether or not the fund makes money. You are charged for “advice ”whether or not you want it, need it or use it. In fact, it’s the relatively high trailer commissions that make Canadian mutual funds among the world's most expensive. Because the salesperson is paid by the fund company, there is a potential conflict -of-interest. Lucrative trailer commissions are designed by the fund companies to motivate salespersons to keep you invested so they can continue to collect management fees. Be aware – these salespersons are not fiduciaries.

10. Fund Facts lists the main fees that you might need to pay as a mutual fund investor when you buy, sell or switch funds. You may also be exposed to additional fees which may include such fees as performance fees, account maintenance fees, trustee fees, registered plan fees, NSF cheque charges, wiring fees, account transfer fees and other fees - these may be relevant to investors in deciding to purchase a fund. Check the Simplified prospectus for a full articulation of all applicable fees and/or ask your salesperson to explain them.

While Fund Facts dependency poses a number of risks to retail investors, the biggest issue is the misleading disclosure of risk. Some funds labeled as MEDIUM could in fact lose 30-40% + .In case of a dispute , this word classification could ,and likely would , be used to rebut your claim of unsuitability . DO NOT trust Fund Facts to determine the risks associated with the fund. Ensure your salesperson explains the risks to you and supports the suitability of the fund for meeting your investment objectives. Remember, IT'S YOUR MONEY.

Contact kenkiv@sympaico.ca for a copy of the Kenmar Associates Companion Guide to Fund Facts. It may save you a lot of time, trouble, aggravation and money.
DISCLAIMER Information contained herein is obtained from sources believed to be reliable, but the accuracy is not guaranteed. The material does not constitute a recommendation to buy, hold or sell. The purpose of this Document is to alert complainants about what they may face when interviewed by an investigator. It is not intended to provide legal, investment, accounting or tax advice and should not be relied upon in that regard. If legal or investment advice or other professional assistance is needed, the services of a competent professional should be obtained.
Kenmar Associates Investor Education and Protection

(advocate comments.....Thanks Ken for all your hard work (unpaid, I might add) on behalf of consumers. Ken's efforts do more to protect the public than do the 60 plus lawyers at the OSC alone. Now if only we could get those who are paid a salary, to protect investors, to actually work to protect investors..........)
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Fri May 13, 2011 1:30 pm

Globe and Mail
https://secure.globeadvisor.com/servlet ... VOX0509ATL
Time to correct Canada's failing grade on fund fees

Tuesday, May 10, 2011
DAVID MILSTEAD
One of the many sharp differences between the Conservative majority and the new official opposition of the New Democratic Party is what to do with the Canada Pension Plan. While the Conservatives say a "modest" increase in the CPP is possible, the NDP has suggested doubling benefits and increasing paycheque deductions.

While the NDP is rightly concerned about whether Canadians are prepared for their golden years, there's a part of their argument about investing for retirement that's ripe for further public-policy exploration: Too much of Canadians' savings are being stripped away by the high cost of their mutual funds.

Old news? Sure. But that only makes it more maddening that year after year, Canadian fund expense ratios are shown to be among the highest in the world.

The latest evidence got relatively little attention. Fund-rating company Morningstar released a new global study several weeks ago on fund fees: Canada was the only country to get an 'F.'

Among the 22 countries Morningstar analysts John Rekenthaler and Benjamin Alpert studied, Canada has the highest annual expense ratios for equity funds, the second-highest for bond funds, and is tied for the highest, with Italy, for money-market funds.

The median asset-weighted expense ratio for equity funds is 2.31 per cent, more than twice as high as the 0.94 per cent in the low-cost U.S., Morningstar said. The median fee for fixed-income and money-market funds is more than 70-per-cent higher than in the U.S. (The Morningstar analysts say it's not entirely fair to make that comparison, since the U.S. is so much larger, but Canada has "significantly higher" fund fees than modestly populated jurisdictions like Australia, Belgium, Hong Kong, Norway and Sweden.)

This is a similar result to Morningstar's 2009 study, which was roundly criticized by the Canadian fund industry. The Investment Funds Institute of Canada argued it was an unfair comparison to other countries because sales charges and other adviser compensation are included in Canadian expense ratios and excluded elsewhere.

(remember that a 2% reduction in your investment performance will cut your long term future cash value by half) 35 yrs
Banks know this, and they get to put the other half in their pockets for their "help" to you.

This time around, Morningstar considered IFIC's complaints - and rejected them. "These costs cannot be explained by pointing to unique features of the Canadian fund market," it said. "Canada's method for computing fund expenses is the global standard, and its distribution model of financial advisers selling and servicing no-load funds is widely shared (although not by its southern neighbour, the United States)."

IFIC did not issue a public statement challenging the report this time around, but it continues to disagree with Morningstar.

John J. DeGoey, a certified financial planner and vice-president of Burgeonvest Bick Securities, calls the Canadian fund industry an oligopoly that doesn't want to compete on price - and consumers let it behave this way.

"The industry in Canada has done a really good job of diverting attention and convincing most consumers to focus on past performance and the manager's style and track record, as if to suggest they're the primary determinants of long-term performance, when in fact, the evidence is fairly clear that the most reliable way to get the top-performing products is to buy the cheapest products," he says.

Mr. DeGoey believes the CPP expansion promises of the NDP (and, to a lesser extent, the Liberals) were designed to address this issue. For most investors, individual stocks carry too much risk, and it's unclear whether financial advisers are introducing them to exchange-traded funds, so mutual funds become a primary savings and investment vehicle. Allowing Canadians to put more into the CPP provides a cheaper option, the NDP argues.

It still doesn't fix the primary problem of high-priced mutual funds, however. For that, there are several possibilities.

One, more akin to the NDP's thinking, is greater regulation: If the fund industry can't manage to compete on price, then the government can introduce caps on fees to push them down.

Another, perhaps more palatable to the Conservatives, is questioning whether fund fees should be subject to the GST or HST. One of the contributors to Canada's high expenses, though not the sole explanation, is the world's highest taxes on fund-management services.

Or, given the Harper government's past efforts to help consumers through greater competition - the wireless phone industry seems to be one example - perhaps more non-Canadian fund firms could be allowed to register and sell their products here.

I'm sure a few could find a way to work with the supposedly unique Canadian model - and manage to charge less than 2.31 per cent for an equity fund.
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Wed Apr 13, 2011 10:48 am

http://www.investmentexecutive.com/clie ... BImageCI=1
Financial Planning

INVESTMENT EXECUTIVE

FPSC proposes changes to CFP Code of Ethics

New principle would require CFP professionals to put client interests first

Tuesday, April 12, 2011

By Megan Harman

Financial Planning Standards Council is proposing changes to the code of ethics and practice standards applicable to Certified Financial Planners, including the addition of a principle that requires planners to put the needs of their clients at the forefront.

(ADVOCATE COMMENT: WOW THE INDUSTRY IS ACTUALLY "CONSIDERING" PUTTING IN PLACE WHAT EVERY MORAL CODE, INDUSTRY CODE, AND REGISTRANT HAS ALWAYS BEEN REQUIRED TO FOLLOW........UNDER CONDUCT AND PRACTICES GUIDELINES)


On Tuesday, FPSC released an exposure draft outlining the proposed changes to the CFP Code of Ethics and CFP Financial Planning Practice Standards. The changes reflect a revitalization of the existing standards, and add clarity to the ethical and practice obligations of CFP professionals ((THIS WORD SHOULD BE READ "SALESPERSONS IF WE WANT TO TALK ABOUT HONESTY AND FULL DISCLOSURE"), the organization said.

“The code and practice standards are integral to establishing the CFP credential as worthy of client trust,” said John Wickett, senior vice president of standards and certification at FPSC. “This revitalization brings even more rigour to the credential by clearly outlining the ethical and practice obligations of the CFP professional.” (CFP IS AMONG THE MOST BASIC EDUCATIONAL DESIGNATIONS, AND THE MOST COMMON. IT IS THE "BELLYBUTTON DESIGNATION IN THE INDUSTRY, EVERY SALESMAN HAS ONE TO HELP WITH MARKETING THEMSELVES)

FPSC undertakes extensive reviews of the code of ethics and practice standards every three years to ensure the CFP credential retains its rigour and relevance as a professional financial planning designation. (NOPE)

A notable proposed addition to the code of ethics is the ‘Client First’ principle, which states that “A CFP professional shall always place the client’s interest first,” and must “place the client’s interests ahead of their own.” (THIS WAS ALREADY IN EVERY CODE OF ETHICS AND LICENSING REQUIREMENT AND HAS NOT BEEN FOLLOWED BY 80% OF CFP'S)

While the code has always been implicitly client-centric, this new principle would make this priority explicit, according to the FPSC. (WHATEVER THAT MEANS.......I THINK IT MEANS WE DID NOT FOLLOW THE PRINCIPLES BEFORE AND WE WILL LIKELY NOT FOLLOW THEM NOW, BUT I WOULD HAVE TO ASK A LAWYER TO BE SURE.....)

Another proposed change would make the code of ethics enforceable in all professional dealings of a CFP professional – not just in situations when they are providing financial planning services. (OH, GREAT. AND THE CFP HAS SHOWN SUCH COURAGE IN ENFORCEMENT HAVEN'T THEY, THE MOST PREDATORY SALESMAN IN CANADA HAS A FILE A FOOT THICK AT THE CFP AND THEY "CANNOT DO ANYTHING" TO PROTECT THE PUBLIC. ALL THEY CAN DO IS PROTECT THEMSELVES.)

“In the absence of regulation of who can offer financial planning advice to Canadians, this revitalized code means the 3.2 million Canadians advised by CFP professionals can be assured these individuals are committed to the highest ethical standards,” Wickett said.

The proposed changes to the code of ethics and practice standards stem from the recommendations of two task forces that were comprised of FPSC staff, volunteers, and representatives from FPSC’s member organizations. The task forces reviewed the existing standards, and in November 2010, suggested changes that would enable them to better reflect international standards and CFP professionals’ obligations to the public.

The proposals are open for comment until May 16, 2011.
I HAVE SAID ENOUGH.
IE
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Sun Mar 20, 2011 11:22 am

Canadian Capitalist writes on Canada's fee environment : A recent Morningstar report shows how egregiously bad mutual fund fees in Canada are when compared to other nations. The report found the median asset-weighted expense ratio to be 1.31% for fixed-income funds, 2.31% for equity funds and 0.80% for money market funds. These fees were the highest among the 22 countries in the survey for equity funds, third highest for fixed-income funds and tied for highest for money market funds. Morningstar found the fees so bad that they ranked Canada an F, a grade that none of the other 21 countries received in any of the four categories — regulation & taxation, disclosure, fees & expenses and sales & media — in the survey.The article also nullifies mant of the industry explanations for our higher fees. He conludes: "A final claim is made that Canadian mutual fund costs should not be compared to those of the United States, because the U.S. marketplace is much larger and therefore enjoys greater economies of scale. This argument has some merit, but it does not explain why Canadian fund expenses are significantly higher than those in other countries with modest population bases, such as Belgium, Australia, Sweden, Norway, and Hong Kong, to name a few.".

http://www.canadiancapitalist.com/morni ... fund-fees/

Thanks to Ken Kivenko and his http://www.canadianfundswatch.com for news and alerts like this one

"self regulation leads to de-criminalization" leads to billions of dollars skimmed and financial violence against millions of Canadians"
"a simple 2% in "fee gouging" will cut your retirement in HALF over a 35 year period......while placing the other half in the hands of your "trusted advisor".
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Wed Feb 23, 2011 9:11 pm

Roseman: Tell investors about fund fees, up front
Published On Tue Feb 22 2011EmailPrint (7)
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By Ellen Roseman
Personal Finance Columnist
Marissa Colalillo has a complaint about the misleading way that mutual funds are often sold to customers.

In February 2008, she went to a salesperson registered with Investors Group and invested more than $500,000 of her family’s money in mutual funds with deferred sales charges (DSCs).

Dissatisfied with the service, she started looking for a new investment dealer a year later. That’s when she learned how the DSCs curbed her freedom to cash in her funds and move elsewhere.

Mutual fund managers must disclose their sales charges in a document given to purchasers at the time of sale, known as a prospectus.

“I’d have to pay $28,000 to leave Investors Group,” Colalillo says.

“A prospectus is legalese. Verbal disclosure is crucial when you look at the amount of the penalty.”

In her complaint to the Ombudsman for Banking Services and Investments, which is still under review, she said the deferred sales charges had not been explained to her by the salesperson.

Nor was she told that Investors Group offered a choice of funds with DSCs (the Series A funds) and without DSCs (the Series B funds).

Kevin Regan, executive vice-president of the Winnipeg-based fund dealer, said he preferred not to comment about a case going through mediation.

Colalillo still has her family’s money with Investors Group. But if she were selling the funds today, she would have to be told verbally about the charges that would be deducted from her proceeds.

Canadian securities regulators have approved new rules that will require fund dealers to tell clients of any transaction fees before accepting an order.

I call it “just-in-time” consumer education. You need to know about DSCs not only when you buy mutual funds, but also when you plan to sell.

With more timely disclosure, you can avoid a badly timed sale that incurs a stiff fee. DSCs usually drop to zero after the first seven years of ownership.

The push for new rules came from the Ontario Securities Commission and two self-regulatory groups: the Mutual Fund Dealers Association (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC).

“We felt it was the right thing to do,” says Larry Waite, chief executive of the MFDA.

Clients had complained about surprise charges shown on trade confirmations and account statements, when it was too late to do anything.

Any switch fees involved in fund transactions, as well as taxes withheld from the proceeds paid to a client, must also be disclosed.

The change should not be onerous for dealers, nor should it slow down the execution of buy and sell orders, Waite says.

Members can provide an estimate – expressed as a percentage or in dollars – of the fees and charges that would apply on an individual transaction.

But they would not be in compliance if they used standard blanket disclosure for all transactions, saying that “additional fees and charges may apply.”

The MFDA, which was recognized as a self-regulatory organization in 2001, has imposed $18 million in penalties against member firms.

It’s currently reviewing the failure of some member firms to perform adequate supervision of leverage recommendations.

As of July 2010, clients must get a disclosure document outlining the risks. In addition, it says: “Your adviser should discuss with you the risks of borrowing to invest.”

I like this approach. In my view, enhanced written disclosure isn’t enough.

Investors such as Colalillo can’t always read and understand the paperwork they’re given. They need a salesperson to give them the goods at a time when they’re buying or selling – or considering such a transaction.

Hurray for Canada’s securities regulators for approving the new rules on mutual fund charges. My only question: What took them so long?

Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca.
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Fri Jan 07, 2011 4:53 pm

Screen shot 2010-12-22 at 4.57.45 PM.png
There's Only One Way To Pick A Good Mutual Fund--And It's Not What You Think

Posted Jan 06, 2011 09:23am EST by Henry Blodget in Investing
Related: VFINX, PRFDX, FDVLX, PENNX, JENSX, JMCVX, AMRMX


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Mutual fund companies brag all day long about their amazing past performance, investment acumen, star portfolio managers, and stock-picking skill.

Unfortunately, when it comes to future performance, none of that stuff matters.

According to legendary Princeton professor Burton Malkiel, who wrote a seminal book on investing called A Random Walk Down Wall Street (now in its 10th edition), there's only one thing that matters when you're trying to pick a good mutual fund:

The expense ratio.

The what?

The expense ratio: The amount the mutual fund charges you to invest in it.

Mutual funds are a fantastic business for the fund companies, in part because so few mutual-fund buyers understand how much they are paying to own the mutual funds--and how much what they are paying affects their investment performance.

The cost of owning a mutual fund is deducted directly from the fund's performance. And unfortunately, there are very few mutual fund managers who are talented enough to offset the cost of their salaries and other costs over the long haul.

As professor Malkiel explains, studies of mutual fund performance have shown that one of the only ways to identify which funds are likely to perform better than average in the future is by looking for the funds with the lowest costs.

In other words, as Vanguard founder Jack Bogle puts it, in mutual funds, you get what you don't pay for. If you're trying to pick a good mutual fund, therefore, the first criteria you should look at is the expense ratio. And you should only consider the funds with the lowest costs.
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Wed Oct 06, 2010 12:18 pm

Kenmar Associates
News Release :BMO “ETF mutual fund ”Wins 2010 Lump of Coal Award
Toronto, Oct 7., 2010- the Fund OBSERVER today announced the winner of the 2010 Lump of Coal Award for Canada’s most “ Creative” fund .
Lumps of Coal Awards recognize managers, executives, groups, companies and regulators for attitude, performance, action or behavior that is offensive, duplicitous, disingenuous, reprehensible or just plain stupid. Based on an idea from Chuck Jaffe.
To win the Award the fund must meet stringent criteria:

1. Must have attracted negative media and investor advocacy attention

2. The MER should be out of line (management expense ratio, what the manager charges to run the fund)

3. The Fund should be of more benefit to salespersons (or the investment firm) than investors

4. The Fund name should be misleading

5. Should be a 'first “

The Award goes to. ...the BMO Canadian Equity ETF Fund for setting a new low in fund creativity, a truly difficult feat.
Here’s some of the unique fund accomplishments and characteristics :
• Deftly converts a low cost ETF into a high cost mutual fund • BMO has not lowered the fees on its equity index fund. Investors will still pay a 1% management fee or more for the newly branded mutual fund, compared with
0.15% for the underlying ETF purchased directly. • Instead of tracking the S&P/TSX Composite, the Canadian equity fund will now
simply hold shares in the less diversified BMO Dow Jones Canada Titans 60
Index ETF. • Mutual fund investors, the most vulnerable of investors, risk being captured by
this more expensive, misnamed Frankenstein fund.[ “You too can own an ETF”] • Eliminates the possibility of placing limit and stop loss orders • Creates a foundation for a whole new class of crap funds to mystify investors with
so salespersons can collect sales commissions and trailers • Has aggravated SIPA , Kenmar Associates and other investor advocates
The fund certainly don’t offer anything for Do-It-Yourself investors, who can get lower priced real index funds from TD, RBC and Altamira. Despite fierce competition from

Kenmar Associates
other industry creations , our Panel believes these accomplishments make the BMO Canadian Equity ETF Fund the 2010 undisputed king of fund industry “creativity”.
CONTACT: Ken Kivenko, President Kenmar kenkiv@sympatico.ca About the Fund OBSERVER: A free bi-weekly industry-independent e-publication devoted to investor protection and education
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Mon Sep 20, 2010 12:59 pm

July 2, 2010, 182 page RBC Funds Simplified Mutual Funds Prospectus

http://www.rbcam.com/pdf/information/prospectus.pdf

RBC Funds Maximum Annual Trailing Commissions: 1.15% (Prospectus page 176)

Dealer compensation from management fees (page 176)

Approximately 55.07 per cent of the total management fees [ MERs ]
paid to the RBC Funds in respect of all the series of the funds was
used to pay for dealer commissions or other promotional activities

of the RBC Funds in the financial year ended December 31, 2009.

(advocate comments.......the smartest minds in the business will tell you that "sales" and marketing MUST be kept separate from "advice" and the banks do exactly the opposite. They violate best fiduciary practices and try to promote as many bank account persons that they can into positions where they call themselves "advisors", while not having the license of an investment advisor, and while acting out the role of salespersons., Very misleading. Not honest by any means.)
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Sun Sep 12, 2010 8:35 am

Mutual fund costs matter, all thirteen of them
Morningstar has recently explained how the level of reported fund expenses is the best reverse predictor of fund performance i.e. the higher the expenses, the worse the likely return. But reported expenses do not represent all fund costs. Without full information an investor considering an actively-managed fund manager who (hopefully) will beat the market is in a dilemma. He has no way of knowing by how much any particular fund manager must beat its benchmark index pre-fees and costs to produce a market-beating return. This first commentary looks at the Morningstar study, and introduces the (unlucky) thirteen different types of fees and expenses that fund investors can be hit with. In subsequent commentaries we will try to quantify the aggregate all-in, after-tax annual cost to equity mutual fund investors; give a more detailed analysis of the 13 types of fund fees and expenses; and describe the profile of the ideal mutual fund (and ETF) from the perspective of minimizing aggregate fund costs.
Introduction

Retail investors can invest directly or through mutual funds or ETF’s. In making that decision costs are a key consideration. Figuring out the costs of direct investing are fairly straight forward. Figuring out fund costs and their impact on investor returns is not.

Morningstar report on fund expenses

The fund evaluation company Morningstar recently released a study or as PDF doc.1762 on the relation between mutual fund expenses levels and investor returns in the USA. Here is how they proceeded:

We took a snapshot of star ratings and expense ratios from 2005 through 2008 and then tracked their progress through March 2010. We rolled up category level data into five broad asset classes: domestic equity, international equity, balanced, taxable bond, and municipal bond. We then measured total returns as of the end of March 2010 for the mutual funds that survived the entire period. For the success ratio, we included funds that were merged or liquidated, as well as those that survived, in order to calculate the number that both survived and outperformed. For the star rating, we recorded the five-year star rating for the data set from 2005, as well as the three-year rating. For 2006 and 2007, we recorded the ensuing three-year rating--meaning we measured the figure in March 2009 for the class of 2006 and the rating in March 2010 for the class of 2007. For the class of 2008, we don't yet have a star rating. For the purpose of this article, I focus on the gap between 1- and 5-star funds and cheapest and most expensive quintiles. NB- Although not stated, we believe the study used the MER as the measure of fund expense levels; more about MER’s later.

Their conclusion?

If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds. … Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile.

But should we be surprised?

In most businesses, you pay more to get more. But in the mutual fund business, you get what you don’t pay for, or stated otherwise, less is better. The Morningstar study received considerable attention; see NYT editorial or as PDF doc.1763; Richards NYT or as a PDF doc.1764; Hougan IndexUniverse or as a PDF doc.1765; Hale MarketWatch or as a PDF doc.1766; a AbnormalReturn video ; and in the WallStreetJournal .
The Morningstar conclusions are not really news. The study in fact merely confirms previous studies; see for example a 2002 US study by Stephan Sharkansky of PersonalFund.com or as a PDF doc.1767. And a 2005 study by Hocjachka or as a PDF doc.1768 and a more recent 2008 study by Bauer and Kicken (see in particular table 5) doc.1271 came to the similar conclusions for Canadian funds.

But if expenses are so critical, it should be easy to calculate them and select mutual funds or ETFs accordingly. But unfortunately, things are not so simple. In this first commentary we look at the different types fund expenses, fees and other deductions (which for convenience we sometimes simplify refer to as expenses or costs) faced by fund investors, the difficulties in computing them, their impact on fund returns, and some practical recommendations.

Fund expenses- unlucky thirteen

When an investor buys and holds directly shares of individual companies his expenses are fairly easily understood: the commissions to purchase (and eventually to sell), impact expenses (for the moment think of them as commissions and the bid/ask spread when you trade- more to come) and taxes on dividends and capital gains taxes when resold (hopefully, at a profit).

If you buy using a mutual fund (ETF costs are different- again, more to come later), things are more complex. We have put together our own list of thirteen fees, expenses and other deductions (which we group into 7 categories) an investor needs to be aware of if he hopes to be able to exhaustively compute the total cost or hurdle he is facing on his fund investments. For similar lists, see ByLo or as a PDF doc.1769 and the Royal Bank (RBC ) or as a PDF doc.1770

We will describe these various types of expenses in detail in a later commentary. For now, let’s stay at the 30,000 feet level.

Category 1- MER

The total of these the three following types of expenses (grossed up to include sales-type taxes such as applicable GST/PST in Canada) is what is called the management expense ratio (MER) or, in the US, the expense ratio. This ratio is what is most commonly reported, but is far from the end of the story. NB- As we will explain later, notwithstanding its name (management expense ratio), for most actively-managed funds much of the MER is actually NOT paid to compensate the fund manager for managing the fund; see IFIC doc.1821 and Khorana study doc.797, p. 1,10). So right off the bat investors who take comfort that a high MER is means a lot of money is being fully used to manage fund investments on behalf of fund investors are already misinformed.
A-Fees actually charged to the fund by its manager for management services
B-Marketing fees charged to the fund by its manager (i.e. so-called trailer fees in Canada; and 12b-1 marketing or distribution fees in the US)
C-Fund manager expenses charged to the fund as part of the management fee.

For more on the MER, the US Morningstar site or as a PDF doc.1822 and the SEC site or as a PDF doc.1771 for a precise definition of expense ratio, another name for the MER. In Canada, see the site of the Financial Consumer Agency of Canada or as PDF doc.1792;Lumsden or as a PDF doc.1772. On the Canadian Morningstar site you will find a list of exclusions from the MER; see O’Leary or as a PDF doc.1773.

Category 2- non-MER MER expenses
D-Other operational expenses of the fund
Surprised that there are fund operational expenses that don’t form part of a fund’s reported MER? So were we. The principal culprit we found here are costs fund managers incur when hedging against foreign currency risks. More about this later.
E-Soft dollar expenses
Never heard of these? We are not surprised; the industry is in no hurry to explain them to you. Just think of them as a fund manager arranging for friendly third parties (e.g. stock brokers the fund manager does business with) to pay certain expenses of his or of the fund with your money.


Category 3- other fund fees
F- Other fees
Mutual funds will charge you other fees at a drop of the hat; see InvestRight.org for examples.

G-Annual fees above and beyond fund manager fees
You may be paying fees beyond what the fund manager is already charging, for example so-called wrap fees (where applicable); see ByLo or as a PDF doc.1769.

Category 4- Mutual fund shenanigans
H-Fund manager shenanigans
Since the birth of mutual funds (see David Swensen p.270-294, who in his book has gone back to the 1920’s to document the sad story) the mutual fund industry has carried out various questionable transactions. Each time regulators take corrective action, another abuse occurs in a new area. The most recent is probably backward pricing; see our site . The industry strategy when caught is to (voluntarily or otherwise) pay an amount as a sort of cost of doing business fine and never talk about it again. The common thread is that these abuses are at the expense of fund investors.

Category 5- Transaction or turnover-related costs (i.e. those related to on trading by the fund)

When you buy or sell shares directly, you incur visible costs (i.e. commissions), plus other less-visible but nevertheless real costs (more about later). Mutual funds are no different, but the rate at which active fund managers buy and sell can compound the problem.
I- Fund brokerage commissions
J-Impact trading costs
K-Capital gains taxes (income taxes payable by the investor on capital gains of the fund) when your fund investment is held in a regular, taxable account.
If you receive dividends on shares you hold directly, you must pay income tax. So too for dividends received by your fund investments held in regular, taxable accounts as they are allocated and passed through to you. We generally do not include dividend and other non turnover-related income taxes in our list of expenses, fees and other deductions you should be concerned of as a fund investor since they are basically in the same amount whether you hold your income-producing investments directly or through a mutual fund.

Category 6- load fees
L-Purchase/redemption (deferred sales charge) fees- charges imposed on the investor at time of purchase or deferred and charged at time of redemption of his investment.

Category 7- Risk premium
M- Additional fund risk beyond a fund’s benchmark index

This is a difficult one (what Bogle calls the thorny issue of risk) as one does not intuitively think of additional risk as an expense. However, if your average active fund manager is taking more risk than the index he is trying to beat, that risk is coming at your expense.

And the total is? MER, TER and…

So what do we call and where can we find the total of these 13 types of fees and expenses (we shall look at each in detail later)? Sorry, but you will not find anywhere a full accounting of expenses, fees and other deductions when considering investing in any particular fund.

Even worse, you will find in documents published by regulators, academics and others references to so-called total ratios that are anything but. Let’s look at the (confusing) total expense terminology.

We begin with regulators who define expense ratios as if they were the whole story. An example? Here is how the SEC defines the expense ratio it requires mutual funds to disclose:

Total Annual Fund Operating Expenses ("Expense Ratio") - the line of the fee table that represents the total of all of a fund's annual fund operating expenses, expressed as a percentage of the fund's average net assets. SEC or as a PDF doc.1771.

The reality is that this so-called total covers only 3 of the 12 types of fees, expenses or other deductions in our list.

In the US, the term TER is used (see Investopedia ) to describe an expanded list of fund expenses which includes certain trading costs; it stands for Total Expense Ratio and is equal to the MER + what is called trading expense ratio or trading cost factor. The site NumericalExample gives assistance in computing the total of the expense ratio (which the site confusingly labels the TER) and certain trading costs for any particular US mutual fund company, and Haslem doc.1775 presents a proposal to revise and expand the TER. But here again, this so-called total does not comprise more than 5 of the 13 types of fees, expenses or other deductions in our list. Confusingly, in Canada TER stands for Trading Expense Ratio which is the cost of commissions paid in the fund as a percentage of the fund’s total assets; for a discussion of this confusing comparative terminology, see Preet Banerjee or as a PDF doc.1776.

One attempt at a more comprehensive summary of fund expenses can be found in the comparative study (originally published in 2006 doc.168, and updated in 2007 doc.797; all page references are to the updated study ) by three academics- Khorana, Servaes and Tufano- of mutual fund expenses in various developed countries. They propose another measure of total expenses, the TSC (for total shareholder charges), which focuses not on the total of MER + trading costs, but rather MER + fund load fees:
Our paper examines funds fees measured in three ways.6 Management fees represent the charges levied each year by funds for management services. These always include investment management services, but may also incorporate payments for administration and distribution. In Australia and Canada, reported management fees also include Goods and Services Taxes (GST). A more expansive and more commonly reported definition of fees is a fund’s expense ratio (in management fees, and includes all annual expenses levied by a fund on its investors, covering investment management, administration, servicing, transfer agency, audit, legal, etc.7 However, TERs exclude certain distribution fees, such as front-end or back-end loads, as well as annual fees charged by distributors that are separate from the fund charges (e.g., fees for participation in a wrap program). Our measure of total shareholder charges (TSC) includes the expense ratio plus annualized loads. Because loads are paid when entering or exiting the fund, it is necessary to divide these loads over the investor’s holding period. We assume a five-year holding period in our analysis.8 This also allows us to compute the appropriate back-end load, if any, given a five year holding period. We define total shareholder cost (TSC) as:
Total Shareholder Cost = TER + initial load/5 + back-end load at five years/5 (1) We have fewer observations on the TSC because data on loads are only available from Morningstar. Our five-year holding period estimate is admittedly ad hoc, as we do not have data on actual holding periods.p.8-9 of Khorana

Khorana’s total shareholder cost ratio or TSC encompasses the MER (and therefore items A, B and C) and item L (load fees). It does not cover our items D, E, F, G, H, I, J, K or M and again is not a comprehensive expense measure, a fact which they themselves at least partially recognize.
Return-gap analysis. Investors not only pay explicit fees, like TERs, but also implicit fees in the form of commissions, market impact, and other security trading costs. These latter fees are not included in our analysis, but may also vary across countries. One way to proxy for total fees is to study index funds and compare the actual return of the index fund to the performance of the underlying index. This ‘return gap’ analysis permits us to determine if our measure of fees is closely related to the full economic costs borne by fund investors. … note 23
23 We could directly use this return gap as a fee measure in our analyses. Unfortunately, for many domicile/country-of-sale pairs, there are no index funds available to construct such a measure at the country level. As a result, the
sample size declines by 60%. We believe that this sample is too small to draw meaningful conclusions.
In addition Khorana back-out the GST/PST, which may be appropriate for in their country comparisons (see p.11), but underestimates the deduction suffered by fund shareholders.

Conclusion

This is enough information (maybe too much, you might say) for one commentary on a rather dry subject. In the next commentary in this series we attempt to quantify the cost to fund investors of all of these fees and expenses.
Last Updated ( Sunday, 12 September 2010 )
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Tue Aug 17, 2010 8:27 am

your investment seller will use nearly any name imaginable, any name except the most accurate one, which is the name "commission salesperson". (or fee based)

(Securities regulators in 13 provinces and territories even assist in the misrepresentation, allowing 130,000 licensed "salespersons" to remove the "salesperson" word from their license category (it was too accurate?) and replace it with the words "dealing representative". One must conclude that not only is the salesperson and the firm working to harm your financial interest, but that they own and control the regulators as well. CSA name change in effect Sept 29, 2009)

Advisor, chartered financial planner, estate planner, elder planner, anything and everything possible. Except the one name that clearly defines what they do. Remember I worked inside for twenty years. Not to say that there are not caring and honest individuals in the industry, there are. They are simply outweighted and outnumbered by management, which is "bonus" motivated, and by an industry where sales statistics clearly demonstrate that over 80% of investment persons will knowingly abuse the financial interests of their customers for commissions or fees.

see the most recent article below from Vancouver:

More on the devastation permitted by Canada's weak regulatory system for "advisors "
Ken K
http://www.vancouversun.com/opinion/Van ... story.html


Stranger than fiction: “Jill MacGregor Bock, who ran into serious regulatory problems after she sold hundreds of thousands of dollars worth of risky and illiquid investments to seniors, has been certified as an "Elder Planning Counselor." This is a designation provided by the Canadian Initiative for Elder Planning Studies, based in Beamsville, Ont. The course is designed to help professionals, including insurance and financial advisers, understand the special needs of seniors.

In 2007, six of those clients told a B.C. Securities Commission hearing panel how she betrayed their trust and failed to properly advise them of the risks. "We find it particularly troubling that, in her submissions, she has shown no real understanding of what she has done and no remorse. She is still unwilling to acknowledge her breaches," the panel noted. The panel prohibited her from selling such investments for three years, and even then, she couldn't sell them without becoming licensed with the commission, which she isn't. Meanwhile, she has become licensed with the Insurance Council of B.C., which enables her to sell insurance and certain other financial products. Due to her past problems, the council has required her to operate under the supervision of another licensed agent. None of this seems to have bothered the Canadian Initiative for Elder Planning Studies, which has welcomed Bock into its fold and provided her with another credible-sounding marketing tool. ” Source: David Baines in Vancouver Sun http://www.vancouversun.com/opinion/Van ... story.html
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Tue Aug 17, 2010 8:24 am

your investment seller will use nearly any name imaginable, any name except the most accurate one, which is the name "commission salesperson". (or fee based)

Advisor, chartered financial planner, estate planner, elder planner, anything and everything possible. Except the one name that clearly defines what they do. Remember I worked inside for twenty years. Not to say that there are not caring and honest individuals in the industry, there are. They are simply outweighted and outnumbered by management, which is "bonus" motivated, and by an industry where sales statistics clearly demonstrate that over 80% of investment persons will knowingly abuse the financial interests of their customers for commissions or fees.

see the most recent article below from Vancouver:

More on the devastation permitted by Canada's weak regulatory system for "advisors "
Ken K
http://www.vancouversun.com/opinion/Van ... story.html


Stranger than fiction: “Jill MacGregor Bock, who ran into serious regulatory problems after she sold hundreds of thousands of dollars worth of risky and illiquid investments to seniors, has been certified as an "Elder Planning Counselor." This is a designation provided by the Canadian Initiative for Elder Planning Studies, based in Beamsville, Ont. The course is designed to help professionals, including insurance and financial advisers, understand the special needs of seniors.

In 2007, six of those clients told a B.C. Securities Commission hearing panel how she betrayed their trust and failed to properly advise them of the risks. "We find it particularly troubling that, in her submissions, she has shown no real understanding of what she has done and no remorse. She is still unwilling to acknowledge her breaches," the panel noted. The panel prohibited her from selling such investments for three years, and even then, she couldn't sell them without becoming licensed with the commission, which she isn't. Meanwhile, she has become licensed with the Insurance Council of B.C., which enables her to sell insurance and certain other financial products. Due to her past problems, the council has required her to operate under the supervision of another licensed agent. None of this seems to have bothered the Canadian Initiative for Elder Planning Studies, which has welcomed Bock into its fold and provided her with another credible-sounding marketing tool. ” Source: David Baines in Vancouver Sun http://www.vancouversun.com/opinion/Van ... story.html
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Sat Aug 07, 2010 3:03 pm

Keith Ambachtsheer
Globe and Mail Update
Published on Monday, May. 21, 2007 10:02AM EDT
Last updated on Tuesday, Mar. 31, 2009 10:49PM EDT
The deadly combination of investor naiveté and industry marketing savvy is costing Canadians investing though mutual funds as much as $25-billion per year. Sustained wealth reductions of this magnitude will cut the retirement income of Canadians investing their retirement savings through the mutual fund sector in half or worse. This is a case of market failure on a massive scale, seriously undermining the retirement prospects of millions of Canadians, especially those working in the private sector. Rather than fiddling with ABM fees, it is this potential massive private sector pension shortfall that our politicians should be focusing their attention on.

The Rotman International Centre for Pension Management at the University of Toronto recently directed a study comparing the investment results of similar investment mandates between Canadian pension funds and mutual funds. It found that the pension fund results bettered the mutual fund results by a startling average 3.8 per cent per year. Applying the 3.8 per cent return ‘haircut' to the $690-billion Canadians have invested in mutual funds implies a wealth transfer from Canadian mutual fund participants to others (mainly to the mutual fund industry itself) of some $25-billion per year, leading to material shortfalls in retirement income down the road.

These disturbing findings provoke two important questions:

(1) Why do Canadian mutual fund investors willingly put themselves in this highly disadvantageous situation?, and

(2) Why do Canadian pension fund participants achieve materially higher returns relative to their mutual fund counterparts?

Half of the answer to the first question lies in the naiveté of mutual fund investors. Behavioural finance research suggests that most people are far from the rational ‘utility maximizers' theory assumes. Instead, they are financially unsophisticated, lacking in knowledge, self-discipline and firm preferences, and easily influenced by outside ‘experts'. For example, a recent Pollara survey asking Canadians why they had invested in mutual funds, found 85 per cent were persuaded by “someone who provided me with advice and guidance”. This response leads directly to the other half of the answer to the first question. The mutual fund industry has been very good at exploiting the naiveté of its customers. If customers want “advice and guidance”, the industry has been only too happy to provide it, either directly or through its coterie of well-paid financial advisers. And what is that advice? Naturally to invest in mutual funds and prosper!

Regarding the second question, pension funds produce materially better investment results because they do not pad their own bottom-line profitability by exploiting the financial naiveté of their ‘customers'. Instead, their single goal is to achieve the highest possible return for pension plan participants within pre-assigned risk budgets. So pension funds have no marketing costs. They have no obligation to produce profits for owners, the way most mutual fund management companies do. Pension funds also don't need to play bravado games trying to continuously prove they are smarter traders than the competition, often leading to far too high (and expensive) turnover rates. Instead, thought-leading pension funds have recognized that simply trading shares with each other is largely a waste of time and money. Instead, real investing is about transforming retirement savings into new productive wealth, from which future pension payments can be generated. This is why pension funds are becoming increasingly pro-active investors in major infrastructure projects around the world, and why they are willing to take a public company like BCE private when they believe value can be unlocked through that process.

What about Canada's governments? Should they treat the $25B pension haircut Canadian mutual fund investors will experience this year just a simple case of ‘caveat emptor'? Or is this a case of massive market failure requiring aggressive remedial action? The Australian and Dutch government responses to this issue 15 years ago are instructive: mandated coverage of their entire national work forces by occupational pension plans. This is pretty well the case for Canadian public sector workers. In contrast, only 27 per cent of our private sector workers are members of occupational pension plans. And the other 73 per cent? Our governments' current position appears to indeed be ‘caveat emptor'. Not so in the United Kingdom. A British government White Paper on pension reform calls for the creation of a National Pension Savings Scheme, which foresees enrolling the entire non-covered part of the UK work force in occupational pension plans specifically created for this purpose.

Meanwhile, our politicians seem to be content fiddling with ABM fees while almost three-quarters of Canada's private sector work force lack adequate pension provisions. Maybe we should close the honourable members' generous pension plans. That should get their attention.

Keith Ambachtsheer is Adjunct Professor of Finance and Director of the International Centre for Pension Management at the Rotman School of Management, University of Toronto. He is the author of “Pension Revolution: A Solution to the Pensions Crisis” (Wiley, 2007).

Read the full study here.

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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Fri Aug 06, 2010 11:37 am

7billion a year skimmed off our savings
More than £7.3billion a year is being “skimmed off” the value of Britons’ savings by City bankers and fund managers, an investigation by The Daily Telegraph has found.
LONDON TELEGRAPH
By Holly Watt, Jon Swaine and Elizabeth Colman
Published: 10:36PM BST 30 Jul 2010


City bankers and fund managers are 'skimming off' more than £7.3billion a year from the value of Britons' savings Photo: Getty
A range of questionable hidden fees and levies are being deducted from investments, making it difficult for a typical saver to make money from the stock market. Britain’s eight million investors are losing an average of £800 a year each to the hidden levies.
An investor putting £50,000 into a fund providing typical returns over 25 years would lose out on £108,000 because of unnecessary charges, said David Norman, a former chief executive of Credit Suisse Asset Management.

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HIdden fees cut value of pensions by half
Why British pensions should go Dutch
Customers have no way of claiming back their lost savings because fund managers are not doing anything illegal or beyond the rules. However, they are now likely to face increased scrutiny from regulators, while the Government could come under pressure to announce an inquiry to clean up the industry, which millions rely on to save for their retirement.
The problems have been compounded by the lacklustre stockmarket, which has hit savers as City firms have rushed to protect their profit margins by increasing fees.
Research has shown that fees in this country are far higher than those in America, where investment funds have been the subject of several regulatory and other official investigations.
Several senior City figures have decided to blow the whistle on the practices, with one fund manager describing the system as a “legalised cartel”.
Alan Miller, a former senior fund manager at New Star, one of Britain’s biggest investment firms, and a co-founder of SCM Private, told The Daily Telegraph: “The time is right for exposure of various elements of the industry.
“It is riddled with blatant self-interest and conflicts of interest that would never be tolerated elsewhere. Investors have become victims as the charges they have to pay have risen and risen while the returns they get have been consistently below par and the actual cost of managing their money has continued to fall.”
Research compiled by the Financial Services Authority and leading data analysts suggests that investors face losing three per cent of their investment each year in charges and fees. However, Mr Miller and Mr Norman said annual charges as low as 0.5 per cent were achievable.
When a saver invests in an ISA, unit trust or other fund, they are informed that they will pay an “annual charge” – typically 1.2 per cent of the value of their savings. The majority of funds levy exactly the same charge.
But the firm also deducts a range of other vaguely defined fees – covering everything from research to office costs from the savers’ money.
In particular, funds charge savers fees and commission every time they buy or sell shares. In some funds, hidden fees can be more than three times higher than the publicly-released annual fees.
For example, according to the data company Lipper, the Halifax UK Growth fund, one of the country’s most popular investment schemes, has only returned 7.47 per cent to savers over the past five years.
Therefore, someone investing £10,000 would have received interest of £747. However, that the fund has actually risen by 15.79 per cent and the extra returns have been pocketed by the fund manager and City brokers.
Data from Morningstar, a research company, shows the average investment fund has an annual charge of 1.25 per cent. But lesser known administrative fees amount to 0.45 per cent. And trading costs total another 1.35 per cent, according to the FSA and Financial Express. This 1.8 per cent being deducted from the total £406 billion invested amounts to £7.3 billion being “skimmed off” each year.
Julie Patterson, director of authorised funds and tax at the Investment Management Association said: “The UK fund management industry is one of the most competitive in the world.
“Less than 50 per cent of the annual management charge (AMC) is retained by the manager, to cover fund costs, including investment management and administration. The majority of the AMC is used to pay advisers, brokers and platforms. Charges for UK authorised funds are fully disclosed and they vary.”
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Re: Tricks of the Trade. Sales tricks, investment abuses.

Postby admin » Thu Jul 22, 2010 8:43 am

How do investing costs hurt returns? Let us count the ways


The fees investors pay on their portfolio holdings
can have a large compounding effect on total gains.
Know what they are, says Garth Rustand of
Investors-Aid Co-operative of Canada



John Heinzl
From Wednesday's Globe and Mail Published on Tuesday, Jul. 20, 2010 7:00AM EDT Last updated on Wednesday, Jul. 21, 2010 5:07PM EDT
Fees are the silent killers of investment returns. Many investors are only dimly aware that fees even exist, but over the long term, fees can cause serious damage to a portfolio.
Consider that $100,000 invested at 8 per cent for 25 years will grow to $684,847. Take off just 2 per cent in fees and that same $100,000 will grow to $429,187 – a difference of $255,660.
Studies show that about half of mutual fund investors have no idea they’re paying any fees at all. What’s more, those that are aware of fees often believe that higher costs are the price for higher returns, when in fact keeping costs low is the key to successful investing.
With that in mind, today’s Investor Clinic provides a comprehensive list of the many fees and other costs investors face. This information comes from the Investors-Aid Guide to Protecting Investment Returns, by Garth Rustand, a former investment adviser who runs the Vancouver-based Investors-Aid Co-operative of Canada.
“To manage your investment costs, you need to know what they are. The investment industry charges at least 18 different types of fees, and taxes add a 19th,” Mr. Rustand writes.
“Some costs are transparently disclosed on investors’ statements, but many are hidden. Some are non-negotiable, while others can be waived upon request.”
See how many of these costs you are paying:
1. Stock-trading commissions. When you buy or sell a stock or exchange-traded fund, you pay a commission ranging from less than $10 at some discount brokers to $150 or more at full-service firms. The more you trade, the higher your costs. Mutual funds that trade a lot also have higher expenses.
2. Fixed-income commissions. These costs are built into the price of bonds, T-bills and even guaranteed investment certificates. Because investors often don’t see these costs, they assume – incorrectly – that they aren’t there.
3. Initial public offerings. No commission is charged on new stock issues, but a premium is added to the price to compensate the seller.
4. Management expense ratio. Expressed as a percentage of assets, the MER of a mutual fund or ETF includes the management fee, operating costs and trailer commissions paid to advisers. The average MER of an equity mutual fund in Canada is about 2.5 per cent.
5. Performance bonuses. Some actively managed funds pay performance bonuses to managers if they beat their benchmark. This may cause the manager to take additional risk.
6. Front-end loads. Some mutual funds charge upfront sales commissions ranging from 1 to 6 per cent. This commission is often waived if the investor asks.
7. Mutual fund switch commissions. Jumping from one fund to another can result in a charge of 1 to 3 per cent. This fee is also often waived upon request.
8. Deferred sales charges. One of the sneakiest types of fees, DSCs – also known as rear-end loads – are charged when an investor redeems a fund before a certain number of years has elapsed. The fees decline from a high of about 6 per cent down to zero after six or seven years.
9. RRSP administration fees. Depending on the size of your registered retirement savings plan, you could be paying an annual fee of $50, $100 or more.
10. Listed unit management fees. Closed-end funds charge annual management fees, which can be as high as the MER of a mutual fund.
11. Asset-based fees. Instead of working on a commission basis, some advisers and portfolio managers charge clients a flat percentage of assets – often 1 to 2 per cent – annually.
12. Layered fees. Investors who hold mutual funds in an asset-based account pay the mutual fund MER plus a percentage fee to their adviser, so it’s important to hold only low-cost funds in such accounts.
13. Fee-for-service. Some financial planners charge on an hourly basis for drawing up financial plans.
14. Tracking fees. Some planners charge a fee to track multiple portfolios at different financial institutions.
15. Transfer fees. When you move an account from one institution to another, the sending institution charges a “transfer-out” fee. The receiving institution will often reimburse you for this fee if you ask.
16. Liquidation costs. When an adviser at a new institution takes over an account, he or she may decide to sell investments to buy other products. Liquidation costs “can easily wipe out an entire year’s return,” Mr. Rustand says.
17. Capital gains distributions. When a mutual fund distributes capital gains, the money is taxable in non-registered accounts.
18. Price spreads. For illiquid stocks or ETFs, the price you pay to buy will be higher than the price you’ll get when you sell, all other things being equal. Mutual funds that buy or sell large blocks of stock can also cause price spreads to widen, adding to costs.
19. Taxes. Some mutual funds turn over 100 per cent of their holdings every year, which means investors lose about 25 per cent of their returns to taxes. “The most tax-efficient products are index funds or units. They have almost no turnover and let you compound your capital gains indefinitely,” Mr. Rustand says.
Is there an investing fee or cost we’ve missed? Let me know about it. jheinzl@globeandmail.com
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